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Labour's renationalisation policy 'ignores lessons of history', claims think tank

Ben Gartside
Reporter
A new report finds renationalisation of industries is unlikely to resolve current problems. Photo: Neil Hall/Reuters

A new report by the Institute for Economic Affairs has said Labour’s renationalisation policies would “ignore the lessons of history”.

Analysing Labour’s proposals on water, rail, energy and the Royal Mail, the think tank report argues that despite some legitimate concerns over their recent performance, renationalisation of these industries is unlikely to resolve the current problems – and could create new ones.

It also suggests that the recent problems within these industries have been caused by over-regulation and government meddling rather than private ownership.

The report, Renationalisation: Back to the Future, argues for reforms of the structures and regulation of these industries, reinforcing market mechanisms and, where appropriate, increasing some regulation while still keeping them within the private sector.

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With regards to the water industry, the report finds some case for the industry to be nationalised — it has some features of a natural monopoly, and needs high levels of investment that theoretically could be financed more cheaply by a government.

However, the authors argue that after a closer look at this sector, it is shown that the performance of private companies has generally been good and is improving, while much more could be done to increase competition for retail customers.

About railways the report suggest that, if anything, the industry has been blighted by too much government interference, with the government having been “over-prescriptive in its franchising policy”, to the extent that “it has made bidding for new franchises commercially unattractive”.

The report also argues that renationalisation would reduce competitiveness in areas where there is currently a choice of providers, and that Labour’s policy of reducing train fares would in turn require more government subsidised investment from the artificial increase in demand via the government-funded reduction in fares.

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On energy and the Royal Mail, the authors slam “increasingly ham-fisted government and regulatory interference” and “heavy trade union influence” for failures under private ownership.

Commenting on the report, author and IEA editorial and research fellow Len Shackleton said: “The public’s dissatisfaction with some aspects of the performance of privatised utilities should not lead us to forget the lessons of decades under nationalisation.
 
“Taking these industries back into the public sector would reduce consumer choice and innovation, while holding back productivity and boosting the power of trade unions and other unrepresentative pressure groups.”

Commenting on the IEA’s new report, Labour’s shadow business minister Bill Esterson told Yahoo Finance UK: “Our transport, energy, water and post should serve the public and the economy.

“For decades, privatisation has seen poor services, poor value for money and lack of investment by the private operators. Most rail and bus users, most energy and water bill payers will agree.

“Public ownership is a successful way of running public services around the world. If it works elsewhere, why is it too good for Britain? Public ownership is in the national interest and we cannot afford not to invest in our future.”